Tax reform adopted in 2018 gives advisors an opportunity to add value to their services for their clients, said Kim Laughton, president of the Schwab Charitable donor advised fund.
“In this crossover year, it is more important than ever for advisors to connect with clients’ tax and estate advisors to ensure their tax, estate, financial and charitable planning are maximizing value. This is also a proven method of generating referrals from these other advisors,” Laughton said.
Advisors can help their clients be strategic and tax-effective with their charitable giving in light of the changes, she said.
“The new tax law retains the charitable deduction and even slightly increases the deductibility for cash gifts and also continues to make it advantageous to give appreciated investments to charity,” she said.
“Talking about taxes and charitable giving also allows advisors to deepen the conversation to include both clients’ financial and philanthropic goals," she added. "This can make tax planning a more positive experience for both the advisor and client and foster a long-term, comprehensive advisor relationship.”
Tax reform approved by Congress and President Trump this year means clients are depending on advisors to guide them through the changes, she said.
“Advisors can help donors determine when to itemize deductions and when to take the standard deduction,” which increases for the 2018 tax year, Laughton said. “By concentrating their charitable deductions in some years, clients may be able to benefit from both the itemized charitable deduction and the higher standard deduction” in alternate years.
In addition, “donating appreciated assets to charity still allows donors to eliminate long-term capital gains taxes and increase the amount available for charity by as much as 20 percent," she said. "A client’s portfolio review can be a good time to identify highly appreciated assets that may make tax-efficient charitable deductions.”
Many high-net-worth households could also benefit from a higher estate tax exemption, a smaller alternative minimum tax and lower taxes on their income. Some of these changes could leave them with more money to give, while others may reduce the tax incentives for charitable giving.
“In our experience, tax incentives are an important consideration in charitable planning but are secondary to personal philanthropic goals and motivations,” she said.